PSA limit

javixeneize

Hi
Question... if the interest i have earned in the year is bigger than my PSA, do i need to do anything, or will HMRC automatically charge tax me for that?

Also, if i am over the limit, i pay taxes for the whole interest or just for the part that is over the limit?

Thanks

Aceace

You can find the full details here: https://www.gov.uk/apply-tax-free-interest-on-savings.
It says: 

If you go over your allowance
You pay tax on any interest over your allowance at your usual rate of Income Tax.
If you’re employed or get a pension, HMRC will change your tax code so you pay the tax automatically....

Dazed_and_C0nfused

javixeneize said:

Hi
Question... if the interest i have earned in the year is bigger than my PSA, do i need to do anything, or will HMRC automatically charge tax me for that?

Also, if i am over the limit, i pay taxes for the whole interest or just for the part that is over the limit?

Thanks

Firstly you have to look at your total taxable income (and type of income).

That will establish if you have savings starter rate available (upto £5,000 interest taxed at 0%) and how much the savings nil rate (aka Personal Savings Allowance) is.  £1,000, £500 or £0.

Once the savings starter rate and nil rate are used then any additional interest is taxed at 20/40/45%.

Note in a small number of situations (HICBC, Married Couples Allowance and adjusted net income > £100k) interest taxed at 0% can actually increase your overall tax liability.

javixeneize

Ok, so hmrc will adjust it if needed, I don’t need to do anything, and I will pay taxes only on the bit that is over the limit, correct?

Dazed_and_C0nfused

You should only need to notify HMRC if your untaxed interest exceeds £10,000.  In which case you will need to complete a Self Assessment return.

Otherwise they do everything else.

Lindagreenacre

On Martin Lewis's TV programme, he keeps stating that you do not pay income tax on the first £1,000 interest if you are a basic rate taxpayer.  I think that it should be clearer, that is if I understand correctly.  I am a pensioner and my pension is well below the £12,500 personal allowance.  However, I have savings interest, which is more than £1,000 per annum.  This still does not take me over the £12,500 + £1,000 nil tax on interest.  Am I correct in thinking that I should not pay income tax?

Aceace

Yes, you are correct. No tax to pay. 

eskbanker

Lindagreenacre said:

On Martin Lewis's TV programme, he keeps stating that you do not pay income tax on the first £1,000 interest if you are a basic rate taxpayer.  I think that it should be clearer, that is if I understand correctly.  I am a pensioner and my pension is well below the £12,500 personal allowance.  However, I have savings interest, which is more than £1,000 per annum.  This still does not take me over the £12,500 + £1,000 nil tax on interest.  Am I correct in thinking that I should not pay income tax?

Yes, and you're not a basic rate taxpayer, in that you're not paying any tax at the basic rate, so the guidance given doesn't apply to you.  There are many permutations of types of taxable income, allowances and nil-rate bands, and there is no realistic prospect of encapsulating them all in a neat soundbite, so it's always better to dig beyond the headline rather than expecting it to cover all angles....

where_are_we

Lindagreenacre said:

On Martin Lewis's TV programme, he keeps stating that you do not pay income tax on the first £1,000 interest if you are a basic rate taxpayer.  I think that it should be clearer, that is if I understand correctly.  I am a pensioner and my pension is well below the £12,500 personal allowance.  However, I have savings interest, which is more than £1,000 per annum.  This still does not take me over the £12,500 + £1,000 nil tax on interest.  Am I correct in thinking that I should not pay income tax?

I hope you are contributing £2880 to a SIPP each tax year. If your total earned income including pensions is less than £9800, and you make an annual £3600 UPFLS (25% tax free - £900 + 75% taxable ( 0% for non tax payers) - £2700 = £3600) withdrawal, you will gain 25% on your £2880 each tax year. If you use an HL SIPP, keep it in cash, no charges, although you need to keep a £50 minimum balance to avoid closure, so in first year make a £3550 UPFLS and a £3600 one subsequently.

Lindagreenacre

where_are_we  You have completely lost me.

where_are_we

Ok! Is your pension your only income (Do not include savings interest)? You say it is well below £12500. You are allowed to contribute £2880 each tax year to a personal pension and then HMRC will add £720 to gross it up to £3600 (if you are not working). You can then withdraw the £3600 tax free as additional pension (if your other pensions do not amount to more than £9800). Go to the pensions forum for further guidance. Hargreaves Lansdown operate a SIPP through which you process these payments and there is no charge. So you would have your present pension plus a HL pension, which when added together each year would not go over your £12500 PA and you would pay no tax. Is your pension the state one? If it isn`t, then when you reach state pension age this additional pension payment may take you over the PA and the "£2880 method is not so beneficial".